Brazil’s Scrapped IPOs Follow Worst Stock Rout in BRICs

Brazilian companies are canceling initial public offerings at the second-highest rate among the biggest emerging markets as slowing economic growth makes the country’s benchmark stock index (SHCOMP) the worst performer this year.

Three IPOs in Brazil were scrapped this year, while seven were announced, compared with zero withdrawals in China and less than a third of offerings this year in India, data compiled by Bloomberg show. One initial share sale was announced in Russia as well as one cancellation. Brazilian companies raised a combined 3.88 billion reais ($1.89 billion) in 2012 through IPOs, down 40 percent from the same period a year ago.

Louis Dreyfus Holding BV’s Biosev SA (BSEV3) sugar-processing unit became the latest company to scrap its initial share sale when it canceled a 1.14 billion-real offering last week because of “market uncertainties.” The Bovespa stock gauge has dropped 23 percent from this year’s high on March 13 as Europe’s debt crisis worsened, prices for commodity exports fell and analysts cut their economic growth forecasts to the weakest since 2009.

“There was a lot of hype about Brazilian IPOs, but in the end stock performance hasn’t given a reason for investors to keep betting on Brazil,” Ed Kuczma, who helps manage $31 billion at Van Eck Associates Corp., said by telephone from New York. “Brazil may be a leader in Latin America, but China plays a major role in the global economy.”

Photographer: Dado Galdieri/Bloomberg

The BM&FBovespa SA Stock Exchange in Sao Paulo. Close

The BM&FBovespa SA Stock Exchange in Sao Paulo.

Close
Open
Photographer: Dado Galdieri/Bloomberg

The BM&FBovespa SA Stock Exchange in Sao Paulo.

Target Range

Two of the three offerings completed in Brazil this year -- from car-rental company Cia. de Locacao das Americas and furniture-maker Unicasa Industria de Moveis SA -- were priced below the lower end of the companies’ targets. Locamerica, as Cia. De Locacao is known, has dropped 19 percent since the IPO, while Unicasa is up 9.1 percent.

Eight out of 10 initial offerings in 2011 were priced either below or at the bottom of the companies’ target range, including sales by oil company QGEP Participacoes SA and health- insurance broker Qualicorp SA.

Grupo BTG Pactual, the investment bank led by billionaire Andre Esteves, completed the biggest IPO in Brazil this year when it raised 3.23 billion reais in April. The stock is down 8.7 percent since then.

Brazil’s economic growth will slow to 1.9 percent this year from 2.7 percent in 2011, according to the median forecast in a central bank survey of 100 economists released July 23. That would be the second-lowest rate since 2003 even as policy makers trim interest rates, cut taxes and expand credit to spur demand.

Investments in Brazil aren’t as attractive as China because the currency is overvalued and there’s too much government intervention in the economy, said Mark Mobius, the executive chairman of Templeton Emerging Markets Group.

‘Fast Growth’

“China is a huge economy now, and to keep having double- digit growth is just not going to happen,” Mobius said in a Bloomberg Radio interview on July 18. “But they’re going to have high single-digit increases, and that’s very fast growth for an economy that size.”

This year, 261 companies have announced plans to sell shares for the first time in China, data compiled by Bloomberg show. Shares of People.cn Co. (603000), the online business of the Chinese Communist Party’s official newspaper, have climbed 75 percent since it raised 300.7 million yuan ($47.1 million) in an IPO in February. The Shanghai Composite Index has slid 2.4 percent this year.

In India, six IPOs have been shelved, while 21 have been announced. Shares in Max Alert Systems Ltd., a Mumbai-based company that provides solutions for firefighting, have almost tripled since it priced shares in an IPO on June 25. India’s benchmark Sensex (SENSEX) index has gained 9.5 percent this year.

In Moscow, Interfax Russia announced plans for an IPO in February, while engineering company EMAlliance canceled plans for a sale. The Micex stock index is down 2.8 percent this year.

‘No Rush’

Jim O’Neill, chairman of Goldman Sachs Asset Management, coined the term BRIC to describe the biggest emerging economies 11 years ago.

Brazil’s high rate of canceled IPOs partly reflects that companies have adequate funding and can afford to wait for the right moment to carry out their sales, said Nick Robinson, a portfolio manager at Aberdeen Asset Management

“Cancellations may show that the companies are in no real rush to list,” Robinson, who helps manage $15 billion in Latin American shares in Sao Paulo, said in a phone interview.

Biosev planned to use proceeds to repay debt and expand its sugar-cane output, according to a prospectus published on its website. The company declined to comment on the cancellation.

Foreign Investors

Foreign investment in Brazil’s equity market is faltering as the government taxes capital flows to weaken the real amid what Finance Minister Guido Mantega called a “currency war” between developing and developed countries. Policy makers in the past two years raised taxes on foreign investors in the local fixed-income market, boosted costs for domestic companies that borrow abroad and imposed a tax on trading currency derivatives.

Foreign investors pulled 2.6 billion reais from the Bovespa in the second quarter, after pouring 4.78 billion reais into the market in the first three months of 2012, according to data compiled by Bloomberg. Foreigners bought 67 percent of shares sold in Brazilian IPOs in 2011, according to Bovespa data.

“Brazilian IPOs still rely heavily on foreign investors,” said Bernardo Rothe, the Sao Paulo-based executive manager of capital markets at Banco do Brasil SA, the biggest underwriter of Brazilian IPOs this year. “The country’s individual and institutional investors are not large or numerous enough to absorb an offering alone.”

To contact the reporter on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net; Lucia Kassai in Sao Paulo at lkassai@bloomberg.net

To contact the editors responsible for this story: David Papadopoulos in New York at papadopoulos@bloomberg.net; Jessica Brice in Sao Paulo at jbrice1@bloomberg.net.

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.